This paper develops a method for nodal pricing and market clearing mechanism considering reliability of power system. The impacts of power system component reliability on electricity price, market participants' profit and system social welfare is considered in this method. This paper considers reliability both for evaluation of market participant's optimality as well as for fair pricing and market clearing mechanism. To achieve fair pricing, nodal price is obtained through a two stage

more »

... on problem and to achieve fair market clearing mechanism, comprehensive criteria are introduced for optimality evaluation of market participant. Social welfare of the system and system efficiency are increased under proposed modified nodal pricing method.